With Respect to Issues Related to the Cost of Capital

question 113

Multiple Choice

With respect to issues related to the cost of capital:

• A)an increase in the debt ratio will result in greater risk for debt holders but not equity holders.
• B)the cost of capital is the return a firm must earn before tax to satisfy security holders.
• C)the WACC is the correct discount rate for average-risk projects.
• D)the expected return on equity is relevant to capital budgeting decisions.

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